Where’s the opportunity in ‘consumer staples’ ahead of a recession?

on Aug 21, 2022
  • Scott Nations names a few stocks he likes in consumer staples.
  • He expects another 125 basis points of rate hikes in 2022.
  • Nations says the recent rally in S&P 500 is unlikely to sustain.

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Consumer Staples Select Sector SPDR Fund is already up more than 10% from its June low but the Chief Investment Officer of National Indexes Inc is convinced it’s not too late to hop onto what will likely be a further rally up.

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Consumer staples are great for a recession

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Scott Nations expects the U.S. Federal Reserve to lift rates by another 125 basis points this year, thereby raising the probability of a recession by that much.

Naturally, therefore, “staples” – companies that make or sell stuff that remains well in demand in the face of an economic downturn, are a great pick here. Revealing names he particularly likes in this space, Nations said on CNBC’s “Power Lunch”:

I’d stay away from high beta names and focus on staples like Procter & Gamble, Colgate-Palmolive, Coke/Pepsi, or cigarette makers. Low beta, defensive names that make or sell stuff you have to have.

Nations is not buying the recent rally in S&P 500

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Interestingly, though, his constructive outlook is limited pretty much to “consumer staples”.

Nations attributes the recent rally in the S&P 500 to the decline in gasoline prices and warns it’s unlikely to sustain since the rest of the macro headwinds remain strong as ever.  

Gasoline is only 5.0% of the CPI. Food is three times and it’s expected to increase this year by 10%. Housing is eight times and Case-Shiller was up 10% YTD in May. Add another 125 bps and that’s all really, really, tough for stocks.

An important event for the broader market is on August 26th when the Fed Chair Jay Powell is scheduled to address the annual global central banking conference in Jackson Hole.


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